How the rich made so much money? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 26 November 2012
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Baltimore, Maryland

No group had more to be grateful for this Thanksgiving in America than the few people at the top of the pile. Over the last 4 decades, their wealth has soared...thanks largely to the feds. In 1971, Richard Nixon cut the last link between the dollar and gold, creating a pure paper money system. Total credit market debt in the US rose more than 30 times since then. As a percentage of GDP debt went up from about 150% to 350%. In very round numbers, the money supply - M2 - went up 10 times since the early '70s (depending on how you measure it). So did the stock market, adding about $14 trillion to the nation's wealth.

--------------------------------- Why is the World's best known trader buying Gold? ---------------------------------

The world, it appears, is headed for a crisis...

At least that's what the expert investors and regulators believe or suggest by their actions.

George Soros for instance has been loading up on Gold, an asset best suited for troubled times.

Nouriel Roubini, a well-known economist, sees the possibility of worse to come for the economy and markets in 2013.

And Ben Bernanke sees the fiscal situation in the US as a "substantial threat" going forward.

That's not all... there are more voices that believe in the possibility of a Global Crisis and which we will share with you shortly.

But the really important thing that should concern you is this -

What can you do to protect and grow your wealth in these tough times?

Well, if you are really interested in finding the answer, just click here...

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Who owns stocks? That's right...the 1%...the people at the top...the rich.

And who runs these companies? The question demands a little cogitation. It seems obvious that the fed's credit bubble raised the tide...and along with it the rich folks' yachts. But did it also increase executive salaries? Maybe.

The Economic Policy Institute calculates that the typical worker got a real salary increase of only 5.9% over the last 30 years... But executive pay rose 127 times as much. Today, the execs earn about 206 times as much as the workers.

Why? Are executives really so much more valuable than they used to be? No one knows, but our guess is that as the feds bubbled up stock prices they also made corporate management seem much more important. If investors thought their stocks would do no better than the economy itself, they probably wouldn't have been willing to managers a lot of money. But the prospect of 1,000% in capital gains brought recklessness, extravagance and negligence to corporate compensation. Investors were willing to pay (or at least ignore) outrageous salaries as long as they thought they were getting rich too.

The trouble was, asset prices were not stable. Instead, they were floating on a sea of debt. And when a storm blew up in '08 -'09, they began to sink. In a matter of weeks, stocks had lost about half their value... The rich looked at their balance sheets. Ouch! They had lost $7 trillion in stock value. But that's when they really got lucky. The feds quickly began their 'Rescue the Rich' program, at a cost of more than $2 trillion. With that new tide of money rushing in, stocks went back up. The rich were saved!

Since the 'recovery' began, the top 1% has captured 9 out of every 10 dollars in extra earnings. And with Obama in the White House for another term...and Bernanke at his post at the Fed...there seems every likelihood that they'll be about to get the other dollar over the next 4 years, giving them a clean sweep of all of America's new earnings..

Yes, dear reader, the rich have never had it so good. There are only a few of them, and they get almost all the new wealth created in the whole country. Of course, there other benefits too. Rich people don't have to depend on Obamacare or Social Security or student loans. Which is a good thing, since these programs are all running deficits and will sooner or later go broke. Then, the rich will have it even better...because they'll be the only ones still able to afford health care, retirement and university educations.

But what's this? Americans used to admire people who made a lot of money. Now, they despise and distrust them. That was part of the reason Mitt Romney couldn't win the White House, even with so many people unemployed. There was something fishy about a guy who had made so much money without getting his hands dirty.

And now, they don't particularly appreciate the rest of 'the rich' either. We turn to a dead economist, John Maynard Keynes, for an explanation:

    "....Governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some .....
That's right, it enriches some...

    Those to whom the system brings windfalls ..... become ."profiteers." who are the object of the hatred ....[as] the process of wealth-getting degenerates into a gamble and a lottery ..
The rich are always the object of envy. Now, they're becoming the object of hatred, too. Ordinary people figure that they must have done something wrong. How else could they have gotten so much money?

Perhaps they recall the phrase of Maupassant: 'Behind every great fortune is a crime.'

But today's rich, generally, are guilty of no crime other than being in the right place at the right time. They own and run public companies at a time when the feds are pumping cash and credit into the system.

So, give thanks, you lucky S.O.Bs.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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6 Responses to "How the rich made so much money?"

SIVARAMAKRISHNAN

Nov 26, 2012

What is that S O B? This is the second time Mr Bill has used this phrase of Governments can confiscate to Gamble and Lottery, to confirm that the rich or the 1% makes money in this way.

Has this gamble and lottery emails are a regular practice in the US to confiscate arbitrarily the middle class and upper middle class wealth? And is the Indian government doing the same to its citizens now? Has this become part of the new economic policy by all the governments in the world?

I request Mr Bill to be honest and clear in his views on my doubts over this new daylight robbery economic policy?

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raghavan

Nov 26, 2012

So, after so many days of Zombie bashing are you acnkowledging that the proble really is saving those super rich/ too big to fails & not zombies?
Never take electrorates all over the world forgranted, they know exactly what is happening w/out the help of so called analysts/experts & they use the only weapon they have & calling that as 'Zombies won' is an insult on the intelligence of the electorates.

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raghavan

Nov 26, 2012

So, after so many days of Zombie bashing are you acnkowledging that the proble really is saving those super rich/ too big to fails & not zombies?
Never take electrorates all over the world forgranted, they know exactly what is happening w/out the help of so called analysts/experts & they use the only weapon they have & calling that as 'Zombies won' is an insult on the intelligence of the electorates.

Like 

raghavan

Nov 26, 2012

So, after so many days of Zombie bashing are you acnkowledging that the proble really is saving those super rich/ too big to fails & not zombies?
Never take electrorates all over the world forgranted, they know exactly what is happening w/out the help of so called analysts/experts & they use the only weapon they have & calling that as 'Zombies won' is an insult on the intelligence of the electorates.

Like 

Dipakkumar

Nov 26, 2012

There is a saying that 'Money brings money', therefore, the rich are going to be richer.

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Basava

Nov 26, 2012

So Bill, what do you suggest the middle class should do to grow their monies since the small amount they save can neither help them by real estate not get into risky stock market?

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